Shephard Dunphy Limited v Casino Properties Limited

[2012] NZHC 261

IN THE HIGH COURT OF NEW ZEALAND WELLINGTON REGISTRY

CIV-2011-485-2672 [2012] NZHC 261

UNDER  Section 290 of the Companies Act 1993

BETWEEN  SHEPHARD DUNPHY LIMITED Applicant

ANDCASINO PROPERTIES LIMITED Respondent

Hearing:         22 February 2012 (Heard at Wellington)

Counsel:         H.L. Thompson - Counsel for Applicant

M. Rabson - Director of Respondent

Judgment:      28 February 2012

JUDGMENT OF ASSOCIATE JUDGE D.I. GENDALL

This judgment of Associate Judge Gendall was delivered on 28 February 2012 at

3.30 pm under r 11.5 of the High Court Rules.

Solicitors:           McMahon Butterworth Thompson, Solicitors, PO Box 106073, Auckland

SHEPHARD DUNPHY LIMITED V CASINO PROPERTIES LIMITED HC WN CIV-2011-485-2672 [28

February 2012]

Introduction

[1]      This is an application by Shephard Dunphy Limited, the applicant company, to set-aside a statutory demand issued against it by Casino Properties Limited the respondent.  The statutory demand in question dated 20 December 2011 claims from the applicant the sum of $112,532.80.  This is said in the demand to be an amount owing for:

Overdue rental and rates from 5 February 2010 until 17 November 2010 at 4-10

Hautonga Street, Petone.  The creditor (Casino Properties Limited) is entitled to the rental and the repayment of the rates from the date of the appointment of the liquidator to Vision Limited.  Shephard Dunphy and Andrew Croad and Christine Dunphy (the liquidators) continue to occupy the buildings until such time as the assets of Vision Limited (in liquidation) were removed.

[2]      The  applicant  is  a  company  which  operates  an  insolvency  practitioner’s

business.    The  respondent  owns  the  property  and  commercial  building  at  4-10

Hautonga Street, Petone (the property).

[3]      The applicant’s  grounds  in  this  application for setting-aside  the statutory demand are first, that there is a genuine and substantial dispute as to whether or not the debt claimed in the demand is owing and due, secondly, that the respondent is aware of the nature and detail of the dispute and thirdly, that the issue of the statutory demand constitutes an abuse of process in terms of s 290(4)(a) and (c) Companies Act 1993.

Background Facts

[4]      Double Zero Holdings Limited (in liquidation) (Double Zero) and another company Vision Limited (in liquidation) (Vision) were related companies.   Vision was Double Zero’s wholly owned subsidiary.  It seems that towards the end of 2009 an  acrimonious  dispute  developed  between  Mr  Malcolm  Edward  Rabson  (Mr Rabson) and Mr David John Hitchens (Mr Hitchens) the shareholders and directors of Double Zero and this culminated in an order by this Court being made to place Double Zero into liquidation on 5 February 2010.  Immediately after this, Vision was also placed into liquidation.

[5]      The respondent company as the owner of the property was the landlord of Vision which occupied the building up to its liquidation under an informal tenancy arrangement.

[6]      Mr Rabson was at the time a director of both Double Zero and Vision and the respondent company.

[7]      It was Ms Christine Dunphy (Ms Dunphy) and Mr Andrew Croad (Mr Croad) who are employees of the applicant company who were appointed as the liquidators of Double Zero on 5 February 2010 and subsequently of Vision I understand two days later.

[8]      Several  days  later  on  9  February  2010  Ms  Dunphy  and  Mr  Croad  as liquidators disclaimed as onerous property any lease or tenancy arrangement that may have  existed  between  the  respondent  and  Vision  and  sought  access  to  the premises to deal with the assets of Vision (now in liquidation) located there.

[9]      In the meantime, from about December 2009, it seems that Mr Rabson on behalf of either Vision or the respondent had changed the locks on the commercial building at the property and disconnected Vision’s security system.  He says he did this to keep his co-shareholder/director Mr Hitchen ‘out’ of the premises.

[10]     From February 2010 a number of email communications were exchanged between Ms Dunphy and Mr Croad as liquidators of Vision and Mr Rabson on behalf of the respondent.  Ms Dunphy and Mr Croad contend that Mr Rabson obstructed their efforts as liquidators to remove Vision’s assets from the premises.

[11]     Many months went by.  Then, over 18 months later Mr Rabson arranged for a tax invoice dated 5 December 2011 to be issued by the respondent claiming total rental, rates and GST for the property for the period from 5 February 2010 to 17

November 2010 of $112,532.80.  This tax invoice was issued and addressed to the “client” named as “Andrew Croad – Shephard Dunphy ...”.   Subsequently the statutory  demand  in  question  here  was  issued  against  the  applicant  company

claiming this amount of $112,532.80.  It was served on the applicant as I understand it three days prior to Christmas on 22 December 2011.

[12]     In the meantime an entirely separate matter had arisen.  This involved a claim by Ms Croad and Ms Dunphy as liquidators of Double Zero and Vision against Mr Rabson personally, seeking relief under s 301 Companies Act 1993 (the Rabson proceeding).  This Rabson proceeding suggested that in September 2009 Mr Rabson had personally transferred the sum of $240,000.00 out of Vision’s bank account as to

$120,000.00 to his own Family Trust and as to the other $120,000.00 to his co- shareholder, Mr Hitchens.   Of the $120,000.00 transferred to Mr Rabson’s Family Trust, some $62,000.00 was subsequently repaid but it seems that Mr Rabson failed to repay or properly to account for the balance received totalling $58,084.31.  It is this amount for which the liquidators of Vision issued the Rabson proceedings.  The matter came before this Court on 11 April 2011 and effectively unopposed, French J granted judgment for this amount and costs to the liquidators.  That judgment was subsequently sealed in the amount of $58,084.31 plus costs and disbursements of

$29,194.30 resulting in a total judgment of $87,278.61.

[13]     Mr Rabson then appealed to the Court of Appeal against this judgment but it seems he took no steps to prosecute the appeal with the result that it is now deemed to have been abandoned.

[14]     Meanwhile, Vision through its liquidators served a statutory demand dated 26

April 2011 on the respondent here Casino Properties Limited having established that Mr Rabson had caused some of the money included in the judgment debt obtained against him noted at [12] above to be transferred to that company. Casino Properties Limited then applied to have that statutory demand set-aside. In a decision I gave in this Court dated 7 September 2011 for reasons outlined therein I set-aside the statutory demand except as to the extent of $18,579.00, an amount which Casino Properties has since paid to the liquidators. The liquidators then allocated this amount in part payment of the judgment debt owing by Mr Rabson.

[15]     In that 7 September 2011 judgment partly setting-aside the statutory demand issued against Casino Properties, I noted at [23] that the reasons outlined in the judgment might raise:

.... a possible arguable dispute here that the respondent’s (Vision’s) lease may have continued beyond 1 December 2009, and thus some amounts for rent and rates and other charges might have been due to the applicant (Casino Properties) and properly off-set against the $52,000.00 payment.

[16]     That judgment went on to note that taking the most favourable view of the evidence advanced in that case by Mr Rabson for Casino Properties, the maximum amount that Vision could possibly have owed Casino Properties by way of off-set as rental, rates and other costs was for the period only up to 1 March 2010 totalling

$33,420.60.  It was this amount which was deducted from the $52,000.00 which had been transferred from Mr Rabson’s Family Trust bank account to Casino Properties. This left a balance of $18,579.40 unaccounted for.

[17]     Significantly at [26] and [27] of my 7 September 2011 judgment I noted:

[26]     I am mindful here that first, the application before me is one to set-aside the statutory demand issued against the applicant, a company whose solvency at this point appears not to be an issue, and secondly that, on such applications, any disputes between the parties properly raised are normally to be resolved by means other than proceedings such as this in the Companies Court.

[27]     That said, I am satisfied here, but only by a rather fine margin, that the applicant has shown that there is arguably a genuine and substantial dispute but only as to the $33,420.60 noted above.  The statutory demand therefore cannot remain for that amount.  That leaves $18,579.40 unaccounted for. The applicant has not shown any basis on which I can be satisfied that there is any real or genuine dispute over that $18,579.50 and I find therefore that the applicant owed this sum to the respondent as at the commencement of the liquidation of the respondent.  (emphasis added)

[18] In November 2011, once Mr Rabson’s appeal to the Court of Appeal against the earlier High Court decision against him in the Rabson proceeding had lapsed, the liquidators served a Bankruptcy Notice on Mr Rabson with respect to the balance of the judgment debt being $87,278.61 less the payment of $18,579.00 (noted at [14] above) making a total of $68,699.21. Mr Rabson in other proceedings has applied to set-aside that judgment and the Bankruptcy Notice. That is, however, an entirely separate matter to issues before the Court in the present proceeding.

Counsels’ Submissions and My Decision

[19]     The applicant brings the present application pursuant to s 290(4)(a) and (c) which  provide  that  the  Court  may  grant  an  application  to  set-aside  a  statutory demand if it is satisfied first, that there is a substantial dispute whether or not the debt in question is owing or is due or secondly, that the demand ought to be set aside on other grounds.  The applicant’s solvency is not in issue here.  It seems it is not seriously disputed.

[20]     The principles relating to s 290(4) are well settled.  The authors of Brookers

Insolvency Law & Practice provide the following succinct summary at para CA

290.02:

The  general  principles applicable to  applications under  s  290(4)  are  now well established.  These principles, which can be discerned from cases such as United Homes (1988) Ltd v Workman [2001] 3 NZLR 447; (2001) 9 NZCLC 262,605 (Court of Appeal); Fletcher Homes Ltd v Wllis 23/7/99, Master Faire, HC Auckland M471IM99; Forge Holdings Ltd v Kearney Finance (NZ) Ltd 20/6/95, Tipping J, HC Christchurch M149/95; Queen City Residential Ltd v Patterson Co-Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,936; Rennie v Prospect Resources Ltd

3/11/95, Tipping J, HC Greymouth M14/95; Crown Transport Services Ltd v Waipa District Council 2/7/08, Associate Judge Faire, HC Hamilton CIV-2007-419-1711; and Taxi Trucks Ltd v Nicholson [1989] 2 NZLR 297; (1989) 1 PRNZ 390 (Court of Appeal), are as follows:

(a)       The applicant must show that there is arguably a genuine and substantial dispute as to the existence of the debt.   The task for the Court is not to resolve the dispute but to determine whether there is a substantial dispute that the debt is due.  The mere assertion that there is a genuine substantial dispute is  not sufficient:   Queen City Residential Ltd v  Patterson Co- Partners Architects Ltd (No 2) (1995) 7 NZCLC 260,935 (HC).

(b)       The mere assertion that a dispute exists is not sufficient.  Material, short of proof, is required to support the claim that the debt is disputed.

(c)       If such material is available, the dispute should normally be resolved other than by means of proceedings in the Companies Court.

(d)       An applicant must establish that any counterclaim or  cross demand is reasonably arguable in all the circumstances. The obligation is not to prove the actual claim.   Such an obligation would amount to the dispute itself being tried on the application.

(e)       It is not usually possible to resolve disputed questions of fact on affidavit evidence alone, particularly when issues of credibility arise.

[21]     It is not disputed between the parties here that there was some form of lease arrangement for the property between the respondent Casino Properties as landlord and Vision as tenant until about the end of 2009.    It is contended that this lease in any event came to an end in about December 2009 or early 2010, but it seems to me that any such lease arrangement has little direct relevance to matters before me in the present proceeding.

[22]     As best I can tell from Mr Rabson’s submissions on behalf of the respondent, his contention is that from the date Vision was placed into liquidation the liquidators in some way entered into a temporary month by month lease of the premises from Casino Properties.   Accordingly, he maintains they through their company are therefore responsible for rental and rates from that date up to 17 November 2010 which they have not paid. That claim is hotly disputed by the applicant here.

[23]     Be that as it may, what is also clear here is that no demand has been issued against the liquidators of Vision, Mr Croad and Ms Dunphy.   Instead the statutory demand in question purports to have been issued against Shephard Dunphy Limited the company which appears to operate their insolvency practice.   The tax invoice issued in December 2011 for this rental and rates debt is confusing to say the least but it appears to be addressed to Mr Croad alone.   The statutory demand which followed is then directed to “Shephard Dunphy (Attention:   Andrew Croad and Christine Dunphy) (the debtor)”.   Although it is not entirely clear that this is a demand made on the company, I give the respondent the benefit of the doubt here and accept that the statutory demand was intended to and should have been issued against and in the name of the company Shephard Dunphy Limited.

[24]     At the outset, however, I need to say that as I see the position on the evidence before the Court, there is no question that any lease short term or otherwise was entered into for the premises between the respondent and the applicant Shephard Dunphy Limited.  No written lease or tenancy was concluded.  Nor in my view does any of the email correspondence between the parties which is before the Court support the view that a monthly lease existed.

[25]     The respondent contends that a month to month lease was agreed because the liquidators of Vision persisted in retaining assets of Vision in the premises which presumably meant that the respondent was unable to rent the premises to a third party.  Again, that proposition is hotly disputed here.  And, in any event, I need to note at this point that it is the liquidators of Vision personally and not the Applicant who had responsibility for Vision’s assets located at the time at the property.

[26]     What is also clear to me is that neither Shephard Dunphy Limited nor the liquidators Mr Croad or Ms Dunphy at any time had keys to the property they were said to be renting (the locks having been changed and security systems disconnected by Mr Rabson in November 2009), that no real documentation to evidence even a short-term lease arrangement or negotiations for such an arrangement is in existence, that no invoice for rent was ever issued by the respondent until many months after the suggested lease had ended, this occurring in December 2011, and finally that the stream of email correspondence between the parties clearly supports the position that throughout  Mr Rabson  simply raised  every possible difficulty to  the liquidators being able to gain access to the premises to remove Vision’s assets.

[27]    Fundamentally as well, I reject any contention that, even if some lease arrangement on a temporary basis had been entered into, this was with Shephard Dunphy Limited. At best, if a lease or tenancy did exist, it might have been with Mr Croad and Ms Dunphy as liquidators, but on all the evidence before the Court, it certainly was not with the company.

[28]     For all these reasons, the issue of the statutory demand against the applicant Shephard Dunphy Limited here was entirely inappropriate.  The applicant company in this proceeding has  been able to show  quite clearly that  there is  arguably a genuine and substantial dispute as to the existence of the debt claimed and that there can be no doubt that Mr Rabson on behalf of the respondent was well aware of that dispute throughout.

[29]     To issue the statutory demand and have it served on 22 December 2011, some three days before Christmas following the issue of the 5 December 2011 tax invoice, the only tax invoice for rent ever provided for the claimed month to month tenancy

(which was said to start over 20 months earlier), in my view was entirely inappropriate and bordering on oppressive conduct.

[30]     For all these reasons the present application succeeds. An order is now made setting aside the statutory demand dated 20 December 2011.

[31]     As the applicant has been entirely successful in the present application it is entitled to an order for costs here.  And, given what I see is the failure on the part of the respondent to act reasonably in relation to this proceeding, actions which must be seen as contributing to the time and expense incurred by the applicant in needing to bring the present application, in my view a 50% uplift on normal Category 2B scale costs is appropriate here.  It should also have been appreciated at an early stage of this whole matter that setting aside of the statutory demand was inevitable – see Pramukh Enterprises Ltd v Johal Enterprises Ltd (2004) 17 PRNZ 317 where increased costs were awarded in a not dissimilar situation.  All this behaviour on the part of the respondent and those acting on its behalf must be marked with an appropriate order for costs.

[32]     Costs are therefore awarded to the applicant against the respondent on this application on a category 2B basis with a 50% uplift together with disbursements as approved by the Registrar.

‘Associate Judge D.I. Gendall’